Freelancer (ASX:FLN): The world’s largest workforce, powered by AI

Freelancer (ASX:FLN) is one of the ASX’s most intriguing stocks. The company is positioning itself as the ‘Amazon of services,’ where individuals can get literally ‘anything done’. A new report from Pitt Street Research (our parent company) was released in the immediate aftermath of the company’s FY23 results and has shown there is significant upside left in this company.

All about Freelancer

Freelancer has 3 platforms. The first of these is Freelancer.com: An online services marketplace that the largest on-demand and lowest cost elastic cloud workforce in the world with over 71m users, spanning 247 countries, 2700+ skills and 33 languages. Freelancer has both a general marketplace as well as an Enterprise division that high-paying larger organisations (such as NASA and Deloitte) can use.

The second is Escrow.com: a platform that facilitates safe digital transactions of high-value goods and services (such as private jets, luxury cars and intellectual property) by holding funds in custody and only transferring them to the seller once the buyer has received the goods or services, inspected them, and found them to be satisfactory. The third is Loadshift.com: Australia’s largest freight marketplace, connecting freight owners with transport operators.

Freelancer differs from its competitors – particularly Airtasker (ASX:ART) – in being a truly global company, enabling a wide variety of tasks, and possessing niches and abilities not offered by other competing companies.

Good results in FY23

The company released its results for FY23 and Pitt Street Research released an update note on the company. Pitt Street’s report highlighted several positive achievements the company made during the period.

From a financial standpoint, FY23 marked the second straight year that the company recorded Gross Merchandise Value of over $1bn, with $1.02bn. $888.6m of this (or 87%) came from Escrow.com. Although the company’s GMV for the full FY23 is lower than in FY22, there was impressive growth in the December quarter (4Q23). Total GMV increased 13.2% to $248.6m, driven by 15.2% growth from Escrow.com.

Cost reductions too

The group was able to record overall costs 18% lower than FY22 and achieved positive EBITDA in FY23. It recorded positive operating cash flow of $1.9m, up from negative $4.2m in FY22, and made a Net Profit Before Tax of $0.2m, from negative $7m in FY22.

FLN added 1.4m users and 201k new projects to the Marketplace segment (including all enterprise customers and Loadshift). The average project has 42 bids (a figure that has remained stable in the last 12 months), and the average entries per contest is 341 (up 11%).

Source: Company

There were several highlights from individual platforms. In particular, the company worked on the integration of AI into the Freelancer.com product and other UI/UX improvements. The company incorporated the Escrow.com solution into a leading SaaS shopping cart platform, scheduled for launch in the second quarter of 2024.

Pitt Street Research values the company at A$0.71-0.93 per share

Pitt Street Research valued the company at $0.71 per share in a base case scenario and $0.93 per share in an optimistic (or bull) case scenario, based on a weighted average valuation methodology using a DCF and relative valuation.

The report saw a number of catalysts for growth. The most important is increased revenue growth prospects across all its platforms, particularly its online freelance marketplace and escrow.com. Risks identified included the risk of an economic downturn, competition and forex risks.

Freelancer is set for strong growth in the coming years

Ultimately, this company is the largest on-demand cloud workforce, powered by AI. It is set for significant growth in the years ahead as the AI boom continues. Although the rise of AI applications like Chat GPT may make some investors think the boom is well underway, it is only just beginning, particularly in the online services space.

The Enterprise Division’s relationships with Deloitte and NASA are particularly encouraging, both as potential for what it could do for future clients, but even how much further the existing relationships could go. FLN has been working with NASA since 2015 for crowdsourcing solutions to the complex problems faced by astronauts, helping NASA reduce costs by 80-99% compared with traditional methods. With Deloitte, FLN has a tailored platform called MyGigs, a self-service short term staffing application connecting the company’s internal talent pool to open up project opportunities with the objective of creating a number one remote talent experience. Over 50,000 consultants from Deloitte have already been onboarded to the platform and more will come in CY24 as the platform is expanded to additional business units.

Conclusion

Pitt Street Research’s report on Freelancer shows just how much potential is still to be unlocked with the company. With the worst of the Tech Wreck behind us, and the company still thriving financially through that time, investors should be excited about this company.

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